Q: Rising from two shops to 10 shops appears troublesome. Can retailers finance this development on their very own or will they want an outdoor investor?

Haig: Now we have performed an evaluation that reveals it’s doable for the standard vendor with two shops as we speak to develop to 10 shops inside a decade. No exterior funding is required, though some retailers may like to draw exterior capital to assist them develop even quicker. For dialogue functions, let’s name this firm Our City Auto Group. Now we have used assumptions that we consider to be practical, however in fact, the long run is difficult to foretell. For the aim of this demonstration, Our City Auto Group has two dealerships which might be making $4 million in pre-tax revenue per location. These dealerships are price $50 million as we speak, inclusive of $10 million of investible capital plus blue sky, plus property, minus debt.

The chart under reveals our estimates for the worth Our City Auto Group might create if it reinvested all of its capital in dealership acquisitions. In line with our funding mannequin and key assumptions under the chart, it might develop from two shops to 10 shops in a decade and improve its fairness worth from simply shy of $50 million to over $150 million. And the identical math works for bigger teams. A gaggle of 10 shops that pursued the identical technique might develop to 50 shops and improve its worth from $220 million to greater than $740 million.

After all, there are dangers related to holding all of your capital in a single business. Many analysts have identified threats to the auto retail enterprise mannequin posed by electrical automobiles, adjustments to franchise legal guidelines, new entrants like Tesla and Rivian, the company mannequin, autonomous automobiles, and so forth. However we additionally know that franchised dealerships have existed for effectively over 100 years they usually have steadily grown in worth, due to inhabitants development and sellers’ entrepreneurial spirit. The American dream is alive in auto retail, one of many final bastions the place family-owned companies can compete and maintain their very own towards multibillion-dollar enterprises. For these sellers who’ve the capital, expertise and vitality for development, a shiny future is beckoning – if they’ll evolve from being caretakers to empire builders.

For these sellers who’re uncomfortable with holding their capital in dealerships, there’s a prepared market of consumers eagerly in search of to buy them. Greater than 500 dealerships traded palms final yr, and at all-time excessive values. Our agency is proud to have suggested on the sale of 41 dealerships final yr and helped 15 households exit the business and transfer on to different actions. Contact us if you want to have a confidential dialog in regards to the worth of your online business.